Trump’s environmental policies are ‘galvanizing’ use of green ETFs

Proponents of socially responsible investing — where one considers what’s good for the world, as opposed to just the bottom line — have seen some big victories this year, as billions of dollars have poured into funds offering such strategies and a record number of advisors are seeking data on the effectiveness of the approach. Who do they have to thank for this trend? President Donald Trump.

Trump has served as a kind of anti-advocate for ESG investing, with investors using the strategy as a counterweight to an administration they see as hostile to environmentally-friendly policies. In June, Trump withdrew the U.S. from the Paris climate accord, a global agreement to reduce greenhouse gases, something scientists say is crucial for avoiding the worst-case scenarios of climate change. Trump has also pledged frequent support for the coal industry, a dirtier form of energy that has seen falling demand for decades amid a shift to alternative energy sources.

“If anything, Trump in the White House is having a galvanizing effect, as sustainable investors become more committed to the idea and draw even more into their ranks, as more people seek ways to counter Trumpism outside of the political sphere,” Jon Hale, Morningstar’s director of sustainable investing research wrote for Fund Strategy.

ESG investing is where a fund only buys stakes in companies that meet its guidelines for environmental, social and corporate governance issues. (There is a difference between ESG strategies and strategies that involve alternative energy companies; a company in any industry can score high ESG marks depending on its internal policies on these issues.)

Thus far this year, according to Morningstar data cited by Hale, ESG funds have seen about $2.9 billion in inflows, putting them on track to eclipse the $4.8 billion in net flows the category saw over 2016. In 2015, about $2.3 billion flowed into ESG funds.

The iShares MSCI KLD 400 Social ETF
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with $891.9 million, the largest exchange-traded fund to offer an ESG theme, has had inflows of $57.4 million in 2017. A fund with a similar theme, the iShares MSCI Global Impact ETF
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which has under $25 million in assets, has nonetheless seen $10.4 million pour into the fund thus far this year, nearly doubling its size.

The KLD fund is up 10.5% thus far this year, compared with the 10.3% rise of the S&P 500
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The Global Impact ETF is up 12.6% year-to-date.

The environmentally themed Aspiration Redwood Fund
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has more than quadrupled in size since Trump’s election in November — from $5.5 million in assets to about $30 million — while the number of individual investors in it have climbed by a factor of more than five, Aspiration’s chief executive officer told MarketWatch in June.

“If we see Washington step back on an issue like climate change, that makes the actions of each of us, as investors, matter a great deal more. If Washington isn’t going to lead, we need to use every lever at our disposal to make sure companies do the right and smart thing with their environmental policies,” said Andrei Cherny, Aspiration’s CEO.

Another sign of the newfound interest in environmentally friendly investing can be gleaned from Morningstar’s Direct Cloud platform, which asset managers, advisory firms and independent wealth managers use for data analysis. “Usage of ESG data has quadrupled since Trump’s January inauguration, an indication that the subject is on the minds of an increasing number of our users,” Hale wrote. There were about 650 users of ESG data on the platform in June, compared with 140 in January.

The number of U.S. users seeking this data rose about 350% between January and June, from 100 to 448. Non-U.S. user growth climbed more than 400%, to 203 from 40.

This trend has even grown in the fixed-income world. About $150 billion of so-called “green bonds” are expected to be issued this year, up from $81 billion in 2016 and just $3 billion in 2012. Green bonds are used to finance environmentally friendly projects, including energy-efficient infrastructure and real-estate development.

Beyond politics, Hale noted that many of these funds have been good for investors as stand-alone investments.

“Among sustainable U.S. large-cap blend funds, 15 out of 33, or 45%, outperformed the S&P 500 during the first half of 2017, compared with only 28% of large-cap blend funds overall,” he noted. More specifically, of the 17 funds that focus on renewable energy, water or clean technologies, 14 have produced better returns than the overall market.

The Energy Select Sector SPDR ETF
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which is heavily focused on oil and gas companies, is down 13.2% in 2017, tracking a 13.8% decline in oil prices
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Energy is the worst-performing S&P 500 sector of the year.

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